It will come as no surprise to anyone that I am still having a very difficult time finding new ideas that pass the safe and cheap tests. That doesn't mean we stop doing the work. I am still reading 10Qs and research reports on a daily basis and scouring the corners of the market looking for new ideas worth buying. I am also spending a good deal of time digging deep on every stock I own to make sure I really want to own them right now. I only want to own my highest-conviction ideas right now and I am attracted to the idea of selling those I do not love quite so much to increase my cash position.
Of course, I also run all my screens on a regular basis. While binge-watching sports last week, I took the time to run my insider screens to see if I could find anything of interest right now. I did find some interesting cluster buying at community banks that is worth noting. The community banks sector is the only place I think investors should be aggressively directing money right now. Insider activity has turned up a few little banks worth a deeper dive right now.
The Bancorp (TBBK) has had a problem or two over the past year. At the end of last year, it had to pay $4.3 million in fines and restitution because of claims of fraud and deceptive practices. The Bancorp is a unique bank as its primary focus has been on providing private-label banking and technology solutions to non-bank financial institutions. It has focused on the high-growth areas of banking like payments, health benefit banking, institutional banking and specialized lending. It has hit more than a few bumps along the way and in the past year has struggled with bad loans and regulatory issues.
The bank appears to be getting its act together. It has focused on cost control, sold off some discontinued loans and raised capital via a common and preferred stock offering in August. Five insiders participated in the capital raise. The stock trades at a discount to book value and there is a lot of upside if management can get back on track and begin growing the company again. They purchased a combined $362,000 of stock so they seem to have a high degree of confidence in their ability to execute.
Warsaw, N.Y.-based Financial Institutions (FISI) recently won a proxy fight with activist investors Clover Partners. The bank is moving forward with plans to expand into the Buffalo market and grow the bank. Clover had criticized the bank's purchase of an insurance brokerage and investment firm, saying earn-back periods were far too long. Clover further suggested that Financial Institutions shareholders might best be served by selling the bank.
Management has won the battle for now. Insiders seem confident of their ability to grow the bank post-proxy fight and four officers and directors including the CEO and CFO have combined to buy $247,000 worth of stock in the past few weeks. It is worth noting that Clover Partners has sold none of their stock in the bank and still owns about 5.5% of FISI.
I met several of the executives of Northrim Bank (NRIM) last year at a conference, and other than being crazy enough to live in Alaska, they struck me as smart, no-nonsense bankers. They are doing a good job of dealing with some weakness in the Alaskan economy as a result of commodity prices and state budget issues. If you step back and take the long view, they have done a fantastic job of growing the bank over the years. Since the IPO, they have grown assets by 21% a year and net income has grown from a loss of about $1.4 million to profits of over $17 million last year. It has not been flashy but good, steady growth as a result of smart banking. Insiders have been steady buyers in the past year and In August there were three more purchases by officers and directors.
The bank is in excellent financial shape with an equity to asset ratio of 12 and nonperforming assets are just 0.81% of total assets. The stock trades at just 1.15x book value and yields 3.03%. I have not bought any shares yet but Northrim is near the very top of my "buy in a bad market" list of stocks.
Community banks are the only area of the market where I see big opportunities and I continue to closely track insider and institutional buying and selling in the sector.